How a payday loan works
Have you ever been surprised with an unexpected expense, like a big car repair bill? You may be overwhelmed with how you will handle it. Do you not have a credit card or maybe you are one of the millions of people who carry too much debt, and have already "maxed out" your credit card. Do you not want to borrow from family and friends? If you feel that you are out of options you may be considering getting a payday loan. Payday loans have been designed for people who need a quick injection of money before their next paycheck. The purpose of a payday loan is fast, easy money to take care of an unexpected expense or financial emergency.
A payday loan also known as a cash advance or check loan is a short-term, high-interest loan. The usual amount of the loan is between $50 and $1000 (usually there is a $1500 dollar limit). You obtain these loans from a payday lender, a company that often offers other convenient financial services, such as foreign currency exchange, utility bill paying and license processing. The process of getting payday loan is actually quite simple. Here is what you need to know about how a payday loan works-
- Payday lenders are set-up to take advantage of banks' disadvantages. There are probably several retail stores in your community who offer this type of service. While these companies often have stores, you can also apply by phone or online. Some payday loan lenders do their business strictly online.
- The application is very different from a typical bank loan application. Usually the application only consists of your contact information, banking information and employment information. Some lenders may ask you for the contact information of a few friends and family. Keep in mind that the lender may call these references were you to not pay back your loan.
- After approval you simply write a check to the lender for the amount you want to borrow, or, if applying online, pledge to pay the borrowed amount by a certain date. The lender will then add the finance charge, or fee. Most lenders express their fees in $100s. Paying $15 per $100 of loan is fairly common on most payday loans.
- The lender then deposits the money in your bank account or gives you a check for the amount.
- The payday loan lender holds the check you wrote for the term of the loan which is usually two weeks. When the agreed on term is up, the company then cashes the check or debits your bank account. This action then pays back your loan and pays the lender's fee.
- This is where the term rollover comes into play. If you cannot afford for that check to be cashed, you will be given the option to roll the loan over into another term (usually another 14 days). The lender will tack on additional fees and interest.
It is the ease and convenience that fuel the allure of payday loans. One of the biggest advantages that payday lenders have over banks is their flexibility in being able to extend loans. In addition payday loan lenders have more locations and longer hours than most banks. Some lenders, are even open 24 hours a day and on Sunday.
Worried about bad credit?
One of the other advantages is that payday loan lenders rarely check your credit. Coupled with the privacy and expediency of the payday loan process, this open-mindedness makes payday lenders very attractive to people with poor credit. This has lead to this loans being referred to as bad credit payday loans.
The speed of the application process
In addition, the loan application process is extremely fast. This is also a huge advantage since most borrowers seeking payday loans have an immediate need for cash. You can usually have completed the process while at a payday loan store or online in just half an hour. In addition you get the money in no time because if the lender does not hand you a check when you apply, the money is usually electronically deposited in your account within a day.
Benefits of a payday loan
In addition to the entire application process being easy there are several other benefits to taking out a payday loan. Some of them are:
- You do not have to go through the hassle of a credit check. This makes them especially appealing to those with less than perfect credit.
- You can apply in person, on the phone or on the Internet. The internet has become the most popular place to apply for a payday loan as many people can complete the process from the comfort of their home or office.
- The entire process can take less than 20 minutes. No more driving the bank, waiting in line, waiting for approval you can can take care of this quickly and easily.
- The loan proceeds are often automatically deposited into your bank account within 24 hours.
- It's affordable(at least immediately) reputable payday loan lenders do not charge you any up-front costs.
- It's discreet since nobody else is involved. Payday loan lenders will not ask you what you want the money for.
- It's secure since your financial information is not shared with others. Online sites pride themselves on having the latest in security to protect your financial information.
- It can elimantate the stress of an unexpected financial problem quickly and easily.
Where can you get a payday loan?
Payday loan companies are in almost every community. Records show that there are over 10,000 payday loan outlets in business in the United States and they are spread out in similar fashion throughout the world. Some of these retail locations are strictly payday loan lenders while others offer this service as a sideline business. You often can find payday loan lending in pawn shops (it's a good fit since most people in a pawn shop are looking for quick cash), check cashiers and even some rent-to-own companies now offer these types of loan. And if there is not a payday loan store near you, you can search the Internet and find hundreds of online payday loans there. Financial experts recommend however that if you do choose to use an online payday loan lender that you carefully research the company before proceeding with the loan. This is imperative in order to keep your financial information secure and away from scammers. You should not only make sure that the online payday loan lender offers a high degree of security on their site but read and review the customer feedback. Any negative reviews is a red flag and you should move on to another site.
Why would you choose not to get a payday loan?
The payday loan industry as a whole is coming under increasing scrutiny. Throughout the United States governments on every level are looking at payday loan outlets with increasing concern. Many people think that these type of loans take advantage of low-income people in financial trouble. Some experts even go as far as to say they "prey" on them. The argument continues as payday loan lenders respond that they are simply filling a need and they are not doing anything illegal.
The main controversy seems to surround the fact that many borrowers after thinking they had solved their financial problem find themselves unable to pay back the loan at their next payday. This leads to the borrower using a "rollover" to extend the loan and resulting in ever higher fees and interest on usually what was only a small amount of principal. Considering that the interest rate was high to begin with this forces the interest rate even higher perhaps making the loan repayment completely out of reach for the borrower. This is why financial experts stress that the use of a payday loan should be limited to a one-time event that helps you get through a time of financial crisis.
There are things you need to consider when you are deciding if a payday loan is the right choice in your particular situation. Yes, the cost of the loan is very high, but it provides you with the money you need, when you need it, and perhaps avoiding late fees, damaged credit or even utilities being shut off then it may be worth it. Each borrower should determine if the cost is worth it to them based on their personal situation.
Payday loans may be controversial - but they do fill a need
Whether you get a payday loan depends on your immediate situation. If you really are out of options then a payday loan is probably the wise thing to do. While it may cost you a few dollars solving the immediate need is probably worth it. Financial experts stress that if you have to get a payday loan, it is crucial that you make sure you do not roll it over too many times since that's when it becomes a problem. Solving your immediate financial need and then repaying the payday loan promptly is the best financial steps you can take.